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How the World’s Fastest-Growing Economy Plunged Into Stagflation – Yahoo Canada Finance



How World’s Fastest-Growing Economy Plunged Into Stagflation

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(Bloomberg) — Just two years ago, Prime Minister Narendra Modi was helming an economy expanding 8%, spurring optimism India was on a path to become a major global growth driver.

Now, stagflation looms as the economy grinds toward its slowest expansion in more than a decade and inflation spikes above the central bank’s target, driven by higher food prices. Social unrest against a restrictive new citizenship law is yet another challenge.

And there’s few good options to deal with the slowdown. Dwindling government revenue and an already-stretched budget limit scope for fiscal support, while the shock 7.35% surge in inflation in December and the threat of higher oil prices mean the door for further interest rate cuts is closing.


Sovereign bonds dropped after the inflation data. The yield on the benchmark 10-year bond rose as much as 10 basis points to 6.7% on Tuesday, the most since Dec. 5.

So what went wrong? At the heart of India’s problems is a slump in consumption following a combination of policy missteps, from the unprecedented decision to ban high-value cash notes at the end of 2016, to the chaotic implementation of a unified goods and services tax the following year. That was followed shortly after by a credit crunch, which triggered a crisis among shadow lenders — a key provider of small loans to hundreds of millions of consumers and businesses.

Volatile Oil

Consumption makes up about 60% of gross domestic product, and spending has slumped as businesses shed jobs and put off investment plans. Consumer sentiment remains in the doldrums and the recent volatility in oil prices could be a further drag on spending. Economic growth in the fiscal year through March 31 is set to slow to an estimated 5%, the weakest pace in more than a decade.

“The recovery is likely to be very gradual and a stagflation scenario is likely,” Teresa John, an economist at Nirmal Bang Equities Pvt in Mumbai, said. Stagflation refers to a condition of accelerating inflation and weakening growth.

The central bank’s five interest-rate cuts last year and billions of dollars of liquidity pumped into financial markets have done little to spur lending. That’s because banks are already saddled with one of the worst stressed-asset ratios in the world and are neither lending much nor transmitting rate cuts to borrowers.

What Bloomberg’s Economists Say

India’s recovery is still sputtering. Our GDP tracker shows growth slamming into reverse in November after a pickup in October, adjusted for year-earlier base effects. This cautions against any premature withdrawal of policy support. Our view is that the government and the central bank need to step up stimulus.

Click here to read the full report.

Abhishek Gupta, India economist

The government has taken steps to revive the economy, but they aren’t bearing fruit yet. Finance Minister Nirmala Sitharaman gave companies $20 billion worth of tax cuts, merged weak state-run banks with stronger ones and eased foreign investment rules. The government will also sell state assets in its biggest privatization drive in more than a decade.

“We are really extremely close to a point where we could be dipping into a major recession,” Abhijit Banerjee, winner of the Nobel prize for economics last year, said this month in Mumbai. “The critical problem in the Indian economy is demand. You definitely want to stimulate demand,” he said, urging authorities to abandon their inflation and budget deficit targets.

There are some early signs that the economy may be bottoming out. The latest high-frequency indicators, such as the purchasing managers indexes for manufacturing and services, show activity is picking up. Industrial production and capital expenditure also improved late last year.

Economists are forecasting a rebound in growth to 6.2% in the fiscal year through March 2021, although much will depend on how quickly global demand and domestic spending recovers.

Nouriel Roubini, a New York University professor and well-known economic doomsayer, told delegates at a Mumbai conference last week that he doesn’t see evidence yet that the “slowdown is going to give way to a significant pick-up in growth in this financial year.” He added that policy makers’ attention “should have been concentrated on the economy and is instead distracted by political things.”

(Updates with bond yields in fourth paragraph.)

–With assistance from Jeanette Rodrigues and Kartik Goyal.

To contact the reporter on this story: Anirban Nag in Mumbai at

To contact the editors responsible for this story: Nasreen Seria at, Malcolm Scott

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Global fertility has collapsed, with profound economic consequences



In the roughly 250 years since the Industrial Revolution the world’s population, like its wealth, has exploded. Before the end of this century, however, the number of people on the planet could shrink for the first time since the Black Death. The root cause is not a surge in deaths, but a slump in births. Across much of the world the fertility rate, the average number of births per woman, is collapsing. Although the trend may be familiar, its extent and its consequences are not. Even as artificial intelligence (ai) leads to surging optimism in some quarters, the baby bust hangs over the future of the world economy.

In 2000 the world’s fertility rate was 2.7 births per woman, comfortably above the “replacement rate” of 2.1, at which a population is stable. Today it is 2.3 and falling. The largest 15 countries by GDP all have a fertility rate below the replacement rate. That includes America and much of the rich world, but also China and India, neither of which is rich but which together account for more than a third of the global population.

The result is that in much of the world the patter of tiny feet is being drowned out by the clatter of walking sticks. The prime examples of ageing countries are no longer just Japan and Italy but also include Brazil, Mexico and Thailand. By 2030 more than half the inhabitants of East and South-East Asia will be over 40. As the old die and are not fully replaced, populations are likely to shrink. Outside Africa, the world’s population is forecast to peak in the 2050s and end the century smaller than it is today. Even in Africa, the fertility rate is falling fast.

Whatever some environmentalists say, a shrinking population creates problems. The world is not close to full and the economic difficulties resulting from fewer young people are many. The obvious one is that it is getting harder to support the world’s pensioners. Retired folk draw on the output of the working-aged, either through the state, which levies taxes on workers to pay public pensions, or by cashing in savings to buy goods and services or because relatives provide care unpaid. But whereas the rich world currently has around three people between 20 and 64 years old for everyone over 65, by 2050 it will have less than two. The implications are higher taxes, later retirements, lower real returns for savers and, possibly, government budget crises.


Low ratios of workers to pensioners are only one problem stemming from collapsing fertility. As we explain this week, younger people have more of what psychologists call “fluid intelligence”, the ability to think creatively so as to solve problems in entirely new ways .

This youthful dynamism complements the accumulated knowledge of older workers. It also brings change. Patents filed by the youngest inventors are much more likely to cover breakthrough innovations. Older countries—and, it turns out, their young people—are less enterprising and less comfortable taking risks. Elderly electorates ossify politics, too. Because the old benefit less than the young when economies grow, they have proved less keen on pro-growth policies, especially housebuilding. Creative destruction is likely to be rarer in ageing societies, suppressing productivity growth in ways that compound into an enormous missed opportunity.

All things considered, it is tempting to cast low fertility rates as a crisis to be solved. Many of its underlying causes, though, are in themselves welcome. As people have become richer they have tended to have fewer children. Today they face different trade-offs between work and family, and these are mostly better ones. The populist conservatives who claim low fertility is a sign of society’s failure and call for a return to traditional family values are wrong. More choice is a good thing, and no one owes it to others to bring up children.

Liberals’ impulse to encourage more immigration is more noble. But it, too, is a misdiagnosis. Immigration in the rich world today is at a record high, helping individual countries tackle worker shortages. But the global nature of the fertility slump means that, by the middle of the century, the world is likely to face a dearth of young educated workers unless something changes.

What might that be? People often tell pollsters they want more children than they have. This gap between aspiration and reality could be in part because would-be parents—who, in effect, subsidise future childless pensioners—cannot afford to have more children, or because of other policy failures, such as housing shortages or inadequate fertility treatment. Yet even if these are fixed, economic development is still likely to lead to a fall in fertility below the replacement rate. Pro-family policies have a disappointing record. Singapore offers lavish grants, tax rebates and child-care subsidies—but has a fertility rate of 1.0.

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Unleashing the potential of the world’s poor would ease the shortage of educated young workers without more births. Two-thirds of Chinese children live in the countryside and attend mostly dreadful schools; the same fraction of 25- to 34-year-olds in India have not completed upper secondary education. Africa’s pool of young people will continue to grow for decades. Boosting their skills is desirable in itself, and might also cast more young migrants as innovators in otherwise-stagnant economies. Yet encouraging development is hard—and the sooner places get rich, the sooner they get old.

Eventually, therefore, the world will have to make do with fewer youngsters—and perhaps with a shrinking population. With that in mind, recent advances in ai could not have come at a better time. An über-productive AI-infused economy might find it easy to support a greater number of retired people. Eventually ai may be able to generate ideas by itself, reducing the need for human intelligence. Combined with robotics, ai may also make caring for the elderly less labour-intensive. Such innovations will certainly be in high demand.

If technology does allow humanity to overcome the baby bust, it will fit the historical pattern. Unexpected productivity advances meant that demographic time-bombs, such as the mass starvation predicted by Thomas Malthus in the 18th century, failed to detonate. Fewer babies means less human genius. But that might be a problem human genius can fix.

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Canadian GDP growth beats StatCan forecast in Q1 2023 – CTV News




The Canadian economy grew faster than expected in the first three months of the year and likely expanded again in April, fuelling speculation that the Bank of Canada will raise interest rates again.

Statistics Canada reported Wednesday real gross domestic product grew at an annualized rate of 3.1 per cent in the first quarter of 2023.


That growth beat out the federal agency’s own forecast of 2.5 per cent for the quarter. A preliminary estimate suggests the economy expanded by 0.2 per cent in April after remaining flat in March.

The Canadian economy has managed to continue outperforming expectations, despite the Bank of Canada hoping high interest rates would cause a more profound pullback by consumers and businesses.

“It is a little surprising the resilience, I would say, of the Canadian consumer … just given the amount of interest rate hikes that had been put in place over the course of the previous year,” said Dawn Desjardins, chief economist at Deloitte.

The Bank of Canada’s key interest rate sits at 4.5 per cent — the highest it’s been since 2007.

The ongoing resilience in the economy is raising the odds of another rate hike, economists say, as the Bank of Canada heads toward its upcoming interest rate decision next week.

“The run of sturdy data undoubtedly raises the odds that the Bank of Canada needs to go back to the well of rate hikes, and even puts some chance on a move as early as next week’s policy decision,” BMO chief economist Douglas Porter said in a client note.

But Porter, along with other commercial bank economists, say that the central bank may delay the decision to raise rates again until the summer.

“However, given the uncertain backdrop and the possibility that inflation took a big step down in May, the Bank of Canada could opt to remain patient for a bit longer and signal that it’s open to hiking in July if the strength persists.”

The federal agency says growth in exports and household spending helped spur growth in the first quarter.

Meanwhile, slower inventory accumulations as well as declines in household investment and business investment in machinery and equipment weighed on growth.

The household spending figures show spending up on both goods and services in the first three months of the year, after minimal growth in the previous two quarters.

However, Statistics Canada noted that disposable income fell for the first time since the fourth quarter of 2021. The federal agency says disposable income declined by one per cent, largely due to the expiration of government measures aimed at helping people cope with inflation.

The combination of higher spending and lower income has pushed down the household saving rate.

Economists have been struggling to get a read on the economy as data has proven to be volatile. Desjardins says converging forces, from the COVID-19 pandemic to changing demographics to population growth, are to blame.

“There are a lot of things that are changing within the economy. And it does make it very challenging to really zero in on what is that one factor that is driving this growth, or is going to be the one that’s going to drive us into a much slower growth trajectory,” Desjardins said.

Forecasters were previously expecting the Bank of Canada’s aggressive rate-hiking cycle, which began in March 2022, to push the economy into a recession as early as the end of 2022.

Those predictions have turned out to be too pessimistic, but economists like Desjardins are still counting on a slowdown this year.

“I do think that households are going to start to feel the squeeze,” she said.

How bad the squeeze will be will depend on how hard the labour market is hit, Desjardins said. So far, the jobs market has kept its steam as the unemployment rate hovers at five per cent, just above the all-time record-low of 4.9 per cent.

The central bank paused its rate-hiking cycle earlier this year to account for the lag that typically exists between changes to interest rates and the effects on the economy.

But the central bank’s governor, Tiff Macklem, has signalled that the bank is still trying to figure out if interest rates are high enough to quash inflation.

The headline inflation rate ticked up slightly to 4.4 per cent in April, remaining well above the central bank’s two per cent target. It’s still expected to decline further this year, but economists and the Bank of Canada worry the journey back to two per cent inflation may take longer than they would hope for.

This report by The Canadian Press was first published May 31, 2023

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Conservative Americans are building a parallel economy – The Economist



If you are a God-fearing, gun-toting patriot, conservative companies are hungry for your business. If Google and YouTube have become too woke for you, consider ditching them for Tusk and Rumble. Before paying your monthly AT&T bill, you might want to switch to Patriot Mobile, the nation’s one-and-only Christian conservative wireless network. Rather than fruitlessly scouring Hinge for fellow right-wingers you can now make a profile on the Right Stuff, a dating app that helps users get to know each other by eliciting responses to prompts like “January 6th was” or “favourite liberal lie”. To get java roasted by veterans, consider sipping on Black Rifle Coffee’s “Silencer Smooth” (light roast), “AK-47” (medium roast), or “Murdered Out” (extra dark roast). And to protest against Hershey honouring a transgender activist on international women’s day, you can instead buy Jeremy’s Chocolate, where the HeHim bar contains nuts and the SheHer one is unequivocally nutless.

And that’s just the beginning. PublicSq, an online marketplace, is home to 40,000 firms devoted to freedom, the family unit and the constitution. Click through and you can find skin care and artisan jerky, probiotics, banks, app developers and accountants. The businesses listed hope to capture the hearts and wallets of as many as 100m patriots, who together, according to Michael Seifert, PublicSq’s founder, make up “the third-largest economy in the world by GDP”. Its CEOs, sellers and most avid customers dream of a parallel economy where conservatives need never buy from liberals. Is such a vision feasible?

Today’s populist Republicans have jettisoned many classical conservative values, but their departure from a decades-long alliance with America’s corporations is one of the most notable rebellions. “Old-fashioned corporate Republicanism won’t do in a world where the left has hijacked big business,” Ron DeSantis, Florida’s governor, recently wrote. The backlash came after Disney condemned Florida’s so-called “Don’t Say Gay” bill, Google halted midterm donations from candidates who had refused to certify Joe Biden’s 2020 win and Delta, Coca-Cola and Microsoft denounced new voting laws in Republican states. Some argue that these public displays of liberal values go beyond economic self-interest. When researchers at the University of Chicago analysed every S&P 500 company tweet since 2011, they found that over time statements from companies and Democratic politicians came to sound more and more alike (see chart).


With big business on Republican hit-lists, entrepreneurs saw an opening. The parallel economy has two major draws. For consumers, it offers the opportunity to buy from firms that reflect their values. Surveys show that Americans want brands to get political and would sometimes even pay a premium for products if they did. For firms, politically aligned suppliers serve as an insurance policy. Businesses can be burnt when companies they rely on back out over politics. Parler, a far-right social network, was paralysed when Amazon pulled its web-hosting services and Apple and Google dropped it from their app stores after January 6th 2021. The withdrawal came just as Twitter froze Donald Trump’s account and his army of apostles were hungry for a fresh platform. Politically aligned backend firms would ensure business opportunities are not missed.

Companies are quickly learning that building viable alternatives to common products—and pulling patrons from big-shot firms—is hard. Writing and maintaining code to run Google and YouTube is so costly that no small startup could hope to compete. For services like Facebook and Tinder, the value is vastly improved with more participants. For these reasons many of the conservative tech firms are fizzling out. Tusk and Rumble have little-to-no name recognition outside far-right circles. Downloads of Truth Social, Donald Trump’s social-media site, are dwindling; its stock price has plummeted since last year. The Right Stuff captured over 50,000 hopeful singles in the two months after its debut, but has barely attracted more since (women are especially lacking). Its seed money from Peter Thiel, a libertarian billionaire, runs out this summer.

Others hope to entice customers by not only pledging devotion to conservative values, but by actually getting their hands dirty. Last spring Patriot Mobile, the wireless network, found and funded 11 candidates to run for school boards in the Fort Worth suburbs. Their $600,000 propelled each to victory, flipping four boards, one of which has since pulled “The Diary of Anne Frank” and LGBTQ-themed novels off library shelves. But patrons who came for phone services are frustrated by the inattention to them, saying in reviews that the firm’s poor customer service is “NOT what Jesus would do!” and claiming the management is so bad “they run it like Biden”.

MyPillow’s founder, Mike Lindell, a conspiracy-theorist, also privileged politics over product. After Dominion, a voting-machine maker, sued him for spreading false claims about election rigging, Costco, Bed Bath & Beyond, Wayfair and more than a dozen other stores stopped stocking his pillows. The company lost $65m because of it, Mr Lindell says.

A third genre of firm, which works to strengthen conservative hotbeds, may be more of a hit. According to its CEO, Conservative Move, a property broker that helps clients sell their house in a Democratic state and buy in a Republican one, has moved “tens of thousands” of people to new neighbourhoods since 2016. Revenue at RedBalloon, a job board that helps workers escape “woke” firms and get hired at right-leaning ones that, for example, respect employees’ right to be unvaccinated, grew by 90% in the first quarter of 2023. (The company’s founder bought the domain because .com “sounded too much like communist”.)

This is not Americans’ first shot at a parallel economy. Forced out of local shops during the Jim Crow era, black people built independent commercial districts. Community leaders spoke of using the “double-duty dollar” at black-owned shops to simultaneously purchase goods and support their own. Later, in the 1970s, a band of lesbians tried to withdraw from the “male economy” with the utopian goal of creating a labour market void of husbands.

Separate yet together

Neither group achieved the self-sufficiency they dreamed of. In the South money was sparse and discrimination was not: black businessmen sold flour and dresses, but lacked the means and connections to open car dealerships or banks. Some feminist firms were lucrative at first—a record company and printing press led the way—but over time sales suffered, pioneers’ energy waned and money dried up. Today’s conservatives have better access to capital than past separatists, and may be greater in number. But the movement uses old strategies that failed in the past, says Lizabeth Cohen, a historian at Harvard University.

Not long ago Brave Books, an anti-woke children’s-book publisher, came out with “Elephants are Not Birds”, the tale of an elephant who, egged on by Culture the vulture, yearns to be a bird. Culture fits him with a beak and some clip-on wings, but after a demoralising attempt to fly the elephant learns that it is not his feelings that dictate who he is, but rather his body. The children who will be read this book may live in Republican states that bar transgender athletes from playing school sports, ban abortions and allow their parents to carry unlicensed pistols. But when Dad finishes reading the story he may just jump in his Jeep to pick up dinner from Shake Shack. When he gets home with food everyone will snuggle onto the IKEA couch to watch a Netflix film. Mom will probably open a pint of her favourite Ben & Jerry’s. Even if it feels as if everything else is becoming more polarised, for now, Americans are still bound by what they buy.

Stay on top of American politics with Checks and Balance, our weekly subscriber-only newsletter, which examines the state of American democracy and the issues that matter to voters.

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